Renting in your 40's and staring into the abyss

dktreesea

The main problem for people buying nowadays compared to even 20 years ago is the likely lack of future growth, ahead of inflation, of their income.


Someone earning £12k a year in 1995, stretching themselves to buy a house in Colchester (average price of houses in that year in Colchester was £56k, source: http://www.proviser.com/regional/parliamentary_constituencies/colchester/property_prices/change_since_1995/semi_detached.html), saving a £6k deposit and borrowing the remainder may have been able to grow their income from £12k a year to £30k a year by 2015, just through normal progression and pay rises in their line of work.


Taking Fiona's situation, say she does the same thing, saving a £20k deposit, and stretching herself to buy a £210k house (average price in Colchester in 2014).


The problem as I see it for her, unlike the person in 1995, is her income could well fall in real terms over the next 20 years. She'd probably be fine buying a £210k house if her income grew from £40k to £100k in the next 20 years. But if it doesn't, maybe only growing to £50k by the time she is 60, then that house is going to be a real struggle for her to pay off compared to a person in an equivalent position to hers ( i.e. earning enough to buy an average price house in Colchester with a 10% deposit) who bought in 1995.


This is potentially a problem for a lot of people with children, who want their children to go to good state schools, so rent in an area where they can't afford to buy. In days gone by, they might have been able to rely on real growth in their incomes, growing faster than house prices were rising, to solve that problem. Nowadays though, people are more likely to be faced with unaffordable areas remaining unaffordable going forward, just because they can no longer rely on income growth.

Mistermeaner

I still think she's just a whinging shirker looking for state handouts she doesn't need.

ukcarper

dktreesea wrote: »

The main problem for people buying nowadays compared to even 20 years ago is the likely lack of future growth, ahead of inflation, of their income.


Someone earning £12k a year in 1995, stretching themselves to buy a house in Colchester (average price of houses in that year in Colchester was £56k, source: http://www.proviser.com/regional/parliamentary_constituencies/colchester/property_prices/change_since_1995/semi_detached.html), saving a £6k deposit and borrowing the remainder may have been able to grow their income from £12k a year to £30k a year by 2015, just through normal progression and pay rises in their line of work.


Taking Fiona's situation, say she does the same thing, saving a £20k deposit, and stretching herself to buy a £210k house (average price in Colchester in 2014).


The problem as I see it for her, unlike the person in 1995, is her income could well fall in real terms over the next 20 years. She'd probably be fine buying a £210k house if her income grew from £40k to £100k in the next 20 years. But if it doesn't, maybe only growing to £50k by the time she is 60, then that house is going to be a real struggle for her to pay off compared to a person in an equivalent position to hers ( i.e. earning enough to buy an average price house in Colchester with a 10% deposit) who bought in 1995.


This is potentially a problem for a lot of people with children, who want their children to go to good state schools, so rent in an area where they can't afford to buy. In days gone by, they might have been able to rely on real growth in their incomes, growing faster than house prices were rising, to solve that problem. Nowadays though, people are more likely to be faced with unaffordable areas remaining unaffordable going forward, just because they can no longer rely on income growth.

She could probably have bought in 2000 and gain from that growth she was already 25 in 1995.

Cornucopia

dktreesea wrote: »

The main problem for people buying nowadays compared to even 20 years ago is the likely lack of future growth, ahead of inflation, of their income.

Well, you can never be 100% sure about what's going to happen, but if she is 40 or thereabouts, then taking a 25 year mortgage really shouldn't be an issue, although she will probably need to work until state retirement age.

There's always the possibility of downsizing later on, though.

Either way, there is no built-in assumption of real-terms salary growth in respect of obtaining or servicing a mortgage. What is true, is that inflation will chip away at the real-terms cost of the payments, in a way that doesn't apply to renting.

HAMISH_MCTAVISH

dktreesea wrote: »

The main problem for people buying nowadays compared to even 20 years ago is the likely lack of future growth, ahead of inflation, of their income.

Wages are currently rising significantly faster than inflation.

And with the huge rise in minimum wage scheduled between now and 2020, and the corresponding effect that will have for most people further up the scale, this trend looks likely to continue for the foreseeable future.

This is potentially a problem for a lot of people with children, who want their children to go to good state schools, so rent in an area where they can't afford to buy. In days gone by, they might have been able to rely on real growth in their incomes, growing faster than house prices were rising, to solve that problem. Nowadays though, people are more likely to be faced with unaffordable areas remaining unaffordable going forward, just because they can no longer rely on income growth.

In most areas that has never been the case for anything other than very short periods of time.

The long term growth in house prices is inflation plus 2.9%.

The long term growth in wages is inflation plus 2%.

House prices have grown faster than wages for most of the last 5 decades.

The best bet for most people has been to buy a house as early as possible and spend as little of your lifetime earnings as possible buying a house for a landlord.

That remains the case today.

HAMISH_MCTAVISH

lessonlearned wrote: »

Sums it up nicely.

We all make daft decisions at times, but the trick is to learn from our mistake and move on. You can't turn back time.

It would appear that her privileged life, enhanced education etc have not prepared her for the vagaries of life. There are people from far less privileged backgrounds, earning much less who have proved themselves to be far more practical and resilient.

I'm one of them....... Working class council house girl, who worked hard and made sacrifices, including delaying motherhood.

Yes you can have it all, but just not all at once and certainly not when you are just starting out.

There has to be some delayed gratification. Too many people put the cart before the horse. House first then babies.

If you take time out to live abroad, see the world or whatever then its easy to miss the boat. Have babies before you are properly settled and odds are you are going to be renting for a very long time.

You have to live like no one else for a while so you can live like no one else later.

In other words make the sacrifices whilst you are young, fit and healthy so you can reap the benefits later. If you spend the best part of your youth educating yourself to lectureship level you cannot then afford the time to spend 10 years abroad fannying around.

Post of the thread.:T

dktreesea

ukcarper wrote: »

She could probably have bought in 2000 and gain from that growth she was already 25 in 1995.

Yes, but from the orignal post, she worked overseas at some point. I didn't buy a property until I was in my 30s, mainly because I had lived and worked in 4 different countries up until then. To buy a house (as opposed to just finding a place to rent and lay your head at night) it does help to actually be settled somewhere.

ukcarper

dktreesea wrote: »

Yes, but from the orignal post, she worked overseas at some point. I didn't buy a property until I was in my 30s, mainly because I had lived and worked in 4 different countries up until then. To buy a house (as opposed to just finding a place to rent and lay your head at night) it does help to actually be settled somewhere.

Then she is responsible for her own actions house prices were still below long term average until 2002 so she still had time. If you choose to live abroad, come back have kids and then try to buy it's no ones fault but her own. That's not to say it's not very hard for young people now just that some whinging middle class blogger does nothing to help their case.

dktreesea

Cornucopia wrote: »

Well, you can never be 100% sure about what's going to happen, but if she is 40 or thereabouts, then taking a 25 year mortgage really shouldn't be an issue, although she will probably need to work until state retirement age.

There's always the possibility of downsizing later on, though.

Either way, there is no built-in assumption of real-terms salary growth in respect of obtaining or servicing a mortgage. What is true, is that inflation will chip away at the real-terms cost of the payments, in a way that doesn't apply to renting.

True, but only if interest rates remain at the current rate throughout the life of the mortgage. It probably is sensible, if you are having a mortgage for 25 years and are trying to work out affordability, to factor in the cost of that mortgage at the long term average for interest rates, as opposed to the ridiculously low interest rates available at the moment.

GunJack

HAMISH_MCTAVISH wrote: »

Wages are currently rising significantly faster than inflation.

And with the huge rise in minimum wage scheduled between now and 2020, and the corresponding effect that will have for most people further up the scale, this trend looks likely to continue for the foreseeable future.

not much point in comparing 2% wage growth with 2.9% hpi, especially 2% of, say £27k ave salary is always be so much less than 2.9% of £190k ave house price....

..and as for "huge rise" in min wage, whoop whoop, £20-ish a week before tax NI and pension...still ain't gonna dent the massive deposit you'll need to try and buy a house.........